How to make money over pension obligations?


#1

@marcus335 might have an idea. I know california has a ticking bomb that’s the pension crisis. I also recently learned oregon is in a similar boat:

Is there a way to make money off of this? Something like the “credit default swaps”, or something to short?

I am not willing to make a huge bet, as california would rather raise taxes than to default on it, but it fascinates me to learn about these financial instruments (and seeing how far these derivatives go is also keeping me awake at night sometimes).

And please don’t say “short bay area real estate” - we know how that goes :slight_smile:


#2

Virtually ever state and major city is in this boat. From prior failures, pension obligations rank above bonds. Also, they can kick the can down the road for a long-time until suddenly they can’t. My guess is the next recession will cause a bunch of places to default. The easy way to play is buy puts on muni bond funds. There are funds for specific states. They are cheap, since muni bonds are usually stable.

This is one to keep an eye on for later. It could make you a killing.


#3

Got puts? Fed just print $ to bail them, no issue.


#4

The fed can devalue the dollar and cause inflation, but they can’t just give local governments money. They could buy muni bonds to stabilize the market the way they did with MBS. Then the fed could choose to be patient about repayment.

The best thing they can do is adopt policies that increase home value to increase property tax revenue. They’re already doing that. I don’t see a way out of the pension funding crisis though. The next recession will make the funding gap grow rapidly.


#5

Trump is working on it. When he has forced AMZN to pay for the unfunded pension of post office. He would force TSLA & AV wannabes to pay for auto industry pensions. Finally, the cash rich tech would need to pay for the pensions of the military because they are using tech based on previous huge defense spending. Just be a little creative :slight_smile:


#6

Pensions are cut off for more recent employees. So the problem will get smaller over time. States can always raise taxes to pay for it. It’s politically difficult that’s why it’s not done. When forced to face the music they will do it.

There will be no crisis. Don’t bet on it.


#7

California’s unfinded liability is over $60B for public employees and over $70B for teachers. That’s not going to just go away. It’ll actually get bigger in the next recession when their investments earn less than projections. California’s entire state budget is $100B, so it’d take 5% more tax revenue for 26 years to fix it. That’s not trivial.